BILL NUMBER: SB 1031	CHAPTERED  10/10/99

	CHAPTER   636
	FILED WITH SECRETARY OF STATE   OCTOBER 10, 1999
	APPROVED BY GOVERNOR   OCTOBER 5, 1999
	PASSED THE SENATE   AUGUST 31, 1999
	PASSED THE ASSEMBLY   AUGUST 26, 1999
	AMENDED IN ASSEMBLY   AUGUST 16, 1999
	AMENDED IN SENATE   APRIL 28, 1999
	AMENDED IN SENATE   APRIL 19, 1999

INTRODUCED BY   Senator Hughes

                        FEBRUARY 26, 1999

   An act to amend Sections 69522, 69529, 69761, 69763, 69766,
69766.1, 69767, and 69768 of the Education Code, relating to student
financial aid, and making an appropriation therefor.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1031, Hughes.  Student financial aid:  Student Aid Commission:
Federal Family Education Loan Program.
   (1) Existing law establishes the Student Aid Commission as the
primary state agency for the administration of state-authorized
student financial aid programs available to students attending all
segments of postsecondary education.  Existing state law authorizes
the State of California to participate in the Federal Family
Education Loan Program for eligible postsecondary students and their
parents and its various component programs.  Existing law authorizes
the commission to establish an auxiliary organization as a nonprofit
public benefit corporation for the purpose of providing operational
and administrative services for the commission's participation in the
Federal Family Education Loan Program.  Existing law requires that
the operations of the auxiliary organization be conducted in
conformity with an operating agreement approved annually by the
commission.
   This bill, on and after January 1, 2002, would authorize the
operating agreement to be conducted in conformity with an operating
agreement approved by the commission for a period not to exceed 5
years.
   (2) Existing law provides for participation by the State of
California in the Federal Family Education Loan Program.  Existing
law specifies that one of the purposes for California's participation
in the federal program is to provide a source of loans to eligible
students in order to assist them in meeting educational costs at
eligible schools of their choice.
   This bill would additionally specify that one of the purposes for
California's participation in the federal program is to provide a
source of loans to eligible students, regardless of their domicile or
the location of the educational institutions they attend, to assist
them in meeting educational costs.
   (3) Existing law establishes the State Guaranteed Loan Reserve
Fund and requires the deposit of all money received from federal,
state, or local governments, or from other private or public sources,
for the purposes of California's participation in the Federal Family
Education Loan Program in that fund.
   This bill would abolish the State Guaranteed Loan Reserve Fund and
instead establish the Federal Student Loan Reserve Fund and the
Student Loan Operating Fund for the deposit of funds for the purposes
of the federal program.  The bill would deem the contents of the
Federal Student Loan Reserve Fund to be the property of the federal
government and the contents of the Student Loan Operating Fund to be
the property of the Student Aid Commission, acting on behalf of the
State of California.  The bill would provide that the contents of the
Federal Student Loan Reserve Fund and the Student Loan Operating
Fund are continuously appropriated for the purposes of the bill.
   Appropriation:  yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 69522 of the Education Code is amended to read:

   69522.  (a) The commission may establish an auxiliary organization
for the purpose of providing operational and administrative services
for the commission's participation in the Federal Family Education
Loan Program.
   (b) The auxiliary organization shall be established as a nonprofit
public benefit corporation subject to the Nonprofit Public Benefit
Corporation Law in Part 2 (commencing with Section 5110) of Division
2 of Title 1 of the Corporations Code, except that, if there is a
conflict between this article and the Nonprofit Public Benefit
Corporation Law, this article shall prevail.
   (c) The commission shall maintain its responsibility for financial
aid program administration, policy leadership program evaluation,
and information development and coordination.  The auxiliary
organization shall provide operational and support services essential
to the administration of the Federal Family Education Loan Program,
if those services are determined by the commission to be consistent
with the overall mission of the commission.  The implementation and
effectuation of the auxiliary organization shall be carried out so as
to enhance the administration and delivery of commission programs
and services.
   (d) The operations of the auxiliary organization shall be
conducted in conformity with an operating agreement approved annually
by the commission.  On and after January 1, 2002, the commission may
approve an operating agreement for a period not to exceed five
years.  Prior to approval, the commission shall provide the proposed
operating agreement to the Department of Finance for its review and
comment.  The operations of the auxiliary organization shall be
limited to services prescribed in that agreement.
   (e) The commission shall oversee the development and operations of
the auxiliary organization in a manner that ensures broad public
input and consultation with representatives of the financial aid
community, colleges and universities, and state agencies.
  SEC. 2.  Section 69529 of the Education Code is amended to read:
   69529.  The operating agreement with the board of directors of the
auxiliary organization, approved by the commission pursuant to
subdivision (d) of Section 69522, shall cover all of the following:
   (a) Any support services provided or special programs administered
by the auxiliary organization.
   (b) The sources of revenue available to the auxiliary
organization, including agreements concerning federal administrative
cost allowances, guarantee fees charged to borrowers, and retention
of funds obtained through collections on defaulted loans.
   (c) Support and administrative services to be provided by
commission staff, including accounting, personnel, clerical,
administrative support, and other services necessary for the
administration of the auxiliary organization.
  SEC. 3.  Section 69761 of the Education Code is amended to read:
   69761.  (a) The purposes of California's participation in the
Federal Family Education Loan Program are as follows:
   (1) To ensure that, in meeting their educational costs, a source
of loans is available to assist the greatest number of eligible
resident students.
   (2) To ensure that loans are available to eligible resident
students that meet the criterion set forth in paragraph (1), the
commission is authorized to provide a source of loans to eligible
students within and outside California irrespective of their
residence or the location of their educational institution, to assist
them in meeting educational costs at eligible schools of their
choice.
   (3) To accept, receive and administer the funds provided under
Title IV of the "Higher Education Act of 1965," and extensions
thereof, or any similar act of Congress in any jurisdiction permitted
under the Higher Education Act.
   (b) The Legislature finds and declares that subdivision (a), as
amended during the 1999 portion of the 1999-2000 Regular Session,
reflects the intent of the Legislature in enacting Chapter 961 of the
Statutes of 1996, and is therefore declaratory of existing law.
  SEC. 4.  Section 69763 of the Education Code is amended to read:
   69763.  (a) (1) The commission shall administer the Federal Family
Education Loan Program as authorized pursuant to this chapter.  The
commission may enter into any contract with the United States
Secretary of Education or any other federal officer or agency under
Title IV of the Higher Education Act of 1965, any extension thereof,
or any similar act of Congress, may cooperate with the government of
the United States, or any agency or agencies thereof, in
administration of the act of Congress and the rules and regulations
adopted thereunder.  The commission shall adopt any rules and
regulations it deems necessary for the proper administration of this
chapter.
   (2) Loans or loan guarantees issued by the commission,
irrespective of the domicile of the eligible student or the location
of the educational institution attended by the eligible student,
prior to the effective date of amendments made to this section during
the 1999 portion of the 1999-2000 Regular Session, have been
determined by the Legislature to be consistent with the purposes of
California's participation in the Federal Family Education Loan
Program, and within the authority of the commission to administer
that program, and consistent with the intent of the Legislature in
enacting Chapter 961 of the Statutes of 1996.
   (b) The rules and regulations adopted by the commission pursuant
to this section shall include a provision authorizing the commission
to impose a civil penalty in an amount not to exceed twenty-five
thousand dollars ($25,000) per violation against any financial or
educational institution that violates any applicable law, rule,
regulation, limitation, consent agreement, or school or lender
agreement, relative to a state financial aid program.  The rules and
regulations adopted pursuant to this section shall provide all of the
following:
   (1) No civil penalty shall be imposed against an institution
without first affording that institution an opportunity to request a
hearing and, if a request for a hearing is made, a hearing shall be
held before a representative of the commission.
   (2) No civil penalty shall be imposed against an institution
unless an action against that institution has been initiated pursuant
to Section 30302 or 30304 of Title 5 of the California Code of
Regulations.
   (c) Any moneys derived from the assessment of penalties pursuant
to this section shall be deposited into the Student Loan Operating
Fund.
  SEC. 5.  Section 69766 of the Education Code is amended to read:
   69766.  (a) The Federal Student Loan Reserve Fund and the Student
Loan Operating Fund are hereby created in the State Treasury.  On
January 1, 2000, the State Guaranteed Loan Reserve Fund shall cease
to exist, and funds deposited, or required to be deposited in that
fund, shall be transferred to the Federal Student Loan Reserve Fund
or the Student Loan Operating Fund and allocated to those funds in
accordance with the requirements of federal law.
   (b) All money received for the purposes of this article from
federal, state or local governments, including any money deposited in
the State Guaranteed Loan Reserve Fund, or from other private or
public sources, shall be deposited in the Federal Student Loan
Reserve Fund or the Student Loan Operating Fund and allocated to
those funds in accordance with the requirements of federal law.
Funds deposited in the Federal Student Loan Reserve Fund or the
Student Loan Operating Fund are not part of the General Fund, as
defined in Section 16300 of the Government Code.  No moneys from the
General Fund shall be deposited in the Federal Student Loan Reserve
Fund or the Student Loan Operating Fund.
   (c) The contents of the Federal Student Loan Reserve Fund are
federal funds, administered in accordance with federal laws and
regulations.  The contents of the Student Loan Operating Fund are
state funds within the custody and control of the Student Aid
Commission.
   (d) Notwithstanding Section 13340 of the Government Code, all
moneys deposited in the Federal Student Loan Reserve Fund and the
Student Loan Operating Fund are hereby continuously appropriated,
without regard to fiscal years, for purposes of this article.  The
continuous appropriation made by this section shall be available to
assume the obligation under any outstanding budget act appropriation
from the State Guaranteed Loan Reserve Fund as it existed prior to
January 1, 2000.
   (e) The total amount of all outstanding debts, obligations, and
liabilities that may be incurred or created under this article,
including any obligation to repay to the United States any funds
provided under Title IV of the "Higher Education Act of 1965," and
extensions thereof or amendments thereto, or any similar act of
Congress, is limited to the amount contained in the Federal Student
Loan Reserve Fund or the Student Loan Operating Fund, and the state
shall not be liable to the United States, or to any other person or
entity, beyond the amount contained in the Federal Student Loan
Reserve Fund or the Student Loan Operating Fund for any debts,
obligations, and liabilities.
  SEC. 6.  Section 69766.1 of the Education Code is amended to read:

   69766.1.  (a) Notwithstanding Section 13340 of the Government
Code, in addition to the purposes for which funds are appropriated
pursuant to Section 69766, there is hereby continuously appropriated
from the Federal Student Loan Reserve Fund and the Student Loan
Operating Fund to the commission, the amount of funds necessary to
make payments for the purchase of defaulted loans.
   (b) Notwithstanding Section 13340 of the Government Code, there is
hereby continuously appropriated from the Student Loan Operating
Fund for transfer to the Federal Student Loan Reserve Fund, all
federal reinsurance payments received on defaulted student loans and
deposited in the Student Loan Operating Fund.
   (c) The appropriation authorized by this section shall be
operative only if the annual Budget Act for the fiscal year is not
chaptered on or before July 15, and shall not exceed the amount
deemed by the commission to be required by federal law or regulation.
  The commission shall notify the Joint Legislative Budget Committee
of the amount of any payments issued pursuant to this section.
  SEC. 7.  Section 69767 of the Education Code is amended to read:
   69767.  The Treasurer shall invest, pursuant to statute, any
surplus money in the Federal Student Loan Reserve Fund and the
Student Loan Operating Fund.  The interest or other accretions as a
result of the investment of this money shall be deposited in the
originating fund, and may be expended for those purposes authorized
in this article or the Higher Education Act of 1965.
  SEC. 8.  Section 69768 of the Education Code is amended to read:
   69768.  (a) The funds in the Federal Student Loan Reserve Fund and
the Student Loan Operating Fund shall be paid out by the State
Treasurer on warrants drawn by the Controller, or through a transfer
between the Federal Student Loan Reserve Fund and the Student Loan
Operating Fund, and requisitioned by the commission in carrying out
the purposes of this article and the federal act.
   (b) The commission is hereby authorized to make advance payments
from the Student Loan Operating Fund to the auxiliary organization
for services rendered to the commission under Article 2.5 (commencing
with Section 69522).  Notwithstanding any other provision of law,
advance payments to the auxiliary organization and any fees charged
by the auxiliary organization for services rendered to the commission
pursuant to an operating agreement may be deposited with a private
financial institution.
